Monday, September 29, 2008

Bailout Reader

(Note: this post is taken from the Ludwig von Mises Institute's economic blog)

The events taking place in the financial market offer an illustration of the soundness of the Austrian theory of money, banking, and credit cycles, and is your source not only for analysis of these events but also the economic theory that helps explain what is happening and what to do about it. There are many thousands of articles available, and also the full text of thousands of books as well as journal articles. It is impossible to draw attention to the full range of literature one can use to understand the crisis.

However, below we offer a brief look into the topics most discussed in these times, with extended treatments of each in the sidebar. also offers both a blog and a community forum for reading and discussing them all.

It's never been more important to spread a sound view of money and banking, not only as a protection against the fallacies of "stabilization" and "reflation" but also as way to see what kind of reforms are essential now.

Fannie Mae and Freddie Mac

The Housing Bubble

Inflationary Finance

Community Reinvestment Act

Short Selling

The Austrian Theory of the Business Cycle

Who Predicted This?

What To Do

Books to Distribute

Who Voted For/Against the Bailout

  • Democrats -- Conyers, N; Dingell, Y; Kildee, Y; Kilpatrick, N; Levin, Y; Stupak, N.

  • Republicans -- Camp, Y; Ehlers, Y; Hoekstra, N; Knollenberg, N; McCotter, N; Miller, N; Rogers, N; Upton, Y; Walberg, N.

Wednesday, September 24, 2008

Failure of Capitalism, or Failure of Government?

We here at GR Pundit have made it a general policy to comment and report on local issues only. However, the extent and scope of the current market crisis requires that we break that policy.

What is the origin of the current economic crisis? Is it capitalism run amok? No. It is government run amok. As with so many economic failures, this crisis has its roots in two government programs - Fannie Mae and Freddie Mac. We will say this categorically: this economic crisis would not be happening if those two entities had not been created by (and implicitly guaranteed by) the federal government. This is not a failure of capitalism, it is a failure of government. This is what happens when the government interferes with the market.

Read a New York Times article from 1999 to understand exactly what started this mess.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''


Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

A few more resources on this gigantic destructive government failure:

Just remember - it is government (the Federal Reserve) that created the Great Depression, it is government (FDR's "New Deal") that extended the Depression to last over 15 years, it is government that created this credit crisis. The government needs to get out of the way and allow the market to correct. Fannie Mae and Freedie Mac need to be liquidated and terminated. It is only when true market mechanisms are allowed to work will we come out of this crisis. "A bailout in every pot" will only prolong the pain.